Want to invest in real estate but don’t want the headaches of landlords, financing, renovations, renters, permits, inspectors, direct mail campaigns, and all the other hassles that come with a real estate investing side hustle?
Me too. I’ve owned dozens of single-family rental properties, but today, I only invest in real estate passively.
Passive real estate investments include notes, funds, real estate syndications, and real estate crowdfunding investments. None is inherently better or worse than the others, or even than active real estate investments. They just come with different pros and cons.
But they also come with a catch: Many don’t allow non-accredited investors. Paternalistic Uncle Sam doesn’t think that everyday people are responsible enough to access certain types of investments. As a result, anyone with a net worth under $1 million (not including home equity) or incomes under $200,000/year can’t invest in many passive real estate investments, classified as 506(c) investments with the SEC.
Some passive investments, classified as 506(b), do allow non-accredited investors. These, too, come with a catch, however: The government doesn’t allow them to be advertised publicly.
So, how can you find passive investments that let you in if they can’t advertise?
Crowdfunding: An Easy Starting Point
Some real estate crowdfunding platforms allow non-accredited investors. I’ve invested in most of the largest ones myself.
They vary by quality, historical returns, and reputation. I’ve had good experiences with Groundfloor, Ark7, and Arrived. Fundrise has had a tough few years but appears to be recovering. The same goes for Streitwise.
Most of these let you dip your toe in the water with $10 to $100. When you first start investing passively in real estate, that makes it far easier—and more comfortable—than the $50,000 to $100,000 sometimes required by private equity investments.
Interestingly, some real estate syndicators have started exploring the use of crowdfunding regulation filings with the SEC as an alternative to the traditional 506(b) or 506(c) filings. I’ve invested in a syndication by Goodegg Investments, filed under Reg-CF, and open to non-accredited investors. So far I like them, and find founder Annie Dickerson to be trustworthy and transparent.
Ask Other Passive Investors
Start with people you know in real life, such as friends and family members. But if you already had a great foothold in the world of passive real estate investing, you probably wouldn’t be reading this right now.
You have plenty of other options to find reputable real estate sponsors (syndicators), note issuers, and fund managers. You can start with the forums on real estate websites like BiggerPockets or Facebook groups for passive real estate investors.
There’s also a platform specifically dedicated to passive real estate investors called Left Field Investors, which has a great forum for discussing sponsors.
Join a Passive Real Estate Investment Club
While there aren’t many, there are a few investment clubs specializing in passive real estate investments.
Left Field Investors is one. My company, SparkRental, operates another, called the Co-Investing Club. You can also check out the Alternative Investing Club as a third option. I don’t mind naming our competitors, because I know and respect them and their founders. All three of these clubs work differently, with a different emphasis.
Our emphasis in the Co-Investing Club is accessibility: making sure everyone—even those without huge sums—has access to passive investment. We meet every month to collectively vet a new deal from different syndicators or note issuers.
Left Field Investors and the Alternative Investing Club primarily serve accredited investors. All three clubs put an emphasis on bringing in lots of guest speakers and transparency in having a platform where passive investors can share information about sponsors, deals, and risk factors.
Listen to Passive Real Estate Podcasts
Some real estate podcasts frequently host syndicators.
BiggerPockets hosts not one but several podcasts, which often feature real estate sponsors. Marco Santarelli hosts the Passive Real Estate Investing Podcast, Goodegg hosts The Life and Money Show, and Left Field Investors hosts the Passive Investing from Left Field podcast. At SparkRental, we host the Live Off Rents podcast, with quick five-to-20-minute episodes.
They’re all great ways to find new sponsors and hear them explain their unique investing strategy.
Network with Active Investors
You can also invest directly with active investors, the ones who are out in the trenches. Perhaps they flip houses, wholesale properties, or buy and hold rental properties. All could make for great partners for you to invest with passively.
That could take the form of partnering with them on deals as an equity partner with partial ownership. Or you could lend them money as a private note.
Word to the wise, however: Only invest with experienced investors who you know, like, and trust. Your cousin buying her first or second property is not a safe person to invest with. Look for investors with dozens or hundreds of deals under their belt, who are happy to open their books and show you their track record—good, bad, and ugly.
What’s Hard to Find as a Non-Accredited Investor?
Some passive real estate investments allowing non-accredited investors are relatively easy to find. Value-add multifamily real estate syndications come to mind as the most common.
Others are much harder to find. For example, networking with active mom-and-pop investors takes some work on your part. You could hop on the BiggerPockets forum and ask, “Who’s a great single-family investor who wants my money?” and you’ll get a thousand responses. But picking out a couple of truly transparent, trustworthy, and experienced investors will prove a lot harder.
Among syndications, it’s hard to find niche investments that allow non-accredited investors. Off the top of my head, I can only think of two reputable self-storage sponsors that allow non-accredited investors. The same goes for mobile home park investors. I can only think of one industrial real estate syndicator that allows non-accredited investors. And it is literally my job to network with sponsors and find the most experienced and trustworthy ones.
It’s also hard to find private equity real estate funds that allow non-accredited investors. I can think of two reputable ones off the top of my head.
Where to Start
If you want to dip your toe in the water, consider investing $100 with Groundfloor, Ark7, or Arrived.
The next level up is exploring notes and syndications. Consider joining a passive real estate investment club to gain the benefit of all the other members’ experience.
When our Co-Investing Club meets to vet a deal, our members ask sharp questions to probe for potential risks. Collectively, we analyze risk from dozens of different directions. Members can then choose to invest $5,000 if they like the deal, and collectively, we surpass the minimum investment of $50,000 to $100,000.
As you get better at analyzing risk on your own, start networking with mom-and-pop investors who might make good partners. That’s something we’ve increasingly done ourselves: trying to find expert single-family investors who have already made every conceivable mistake and won’t lose our money if we partner with them on a flip or portfolio of rentals.
To me, it’s a fun, low-stress way to invest. I get to travel the world without the hassle of tenants or property managers. And I get to invest small amounts across many properties, cities, syndicators, mom-and-pop investors, and property types. That means I don’t need a crystal ball to spot the next hot trend or booming city—I probably have money there already.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
